Best Investment alternative for the increased 50K Limit under Section 80C

Generally we all get confused when it comes to investing for tax purposes between PPF and Tax saving Mutual Funds.This budget brings happiness for most of salaried individuals who actually believes in investing. Union budget has increased the investment limit under section 80C from Rs. 1Lakh to Rs. 1.5Lakh. At the same time they have also increased the PPF limit from Rs. 1Lakh to Rs. 1.5Lakh. It means you can simply invest all of your 1.5Lakhs into PPF and enjoy the benefits of tax deduction along with the 'Guaranteed Returns' (This is what PPF is meant for).

Let me ask you one simple question: Is it really a good investment planning to park your complete 1.5Lakh into PPF? Are you able to beat the inflation with this tactics?

The answer to both the questions is NO. Many individuals avoid any equity investments and prefer PPF as they prefer the safety and guaranteed returns of PPF over volatility and uncertainty of stock markets. I have come across many such persons in my life who wants to invest for their future but are not willing to take risk. In this article I will share some number crunching that act as an eye opener for you. Seeing this you can seriously consider ELSS as one of the best option under 80C category and take this additional 50K limit as an opportunity to shed away your fear and get associated with equity market.

Now I will show a comparative chart of PPF and ELSS (I have chosen HDFC Tax saver for this purpose) for 15 year period. Consider an investor invested Rs. 5000 per Month in PPF and ELSS.

Investment Chart for PPF

Investment Chart for ELSS:

It is clearly evident from the above table that while an investment of 5000/ Month in PPF grows to Rs. 20 Lakh 69 Thousand, the same investment in ELSS grows to approximately Rs. 67 Lakhs.

Here are some of the key considerations that can be inferred from the above tables:

• In the quest of not losing money, which led the investor to park money in PPF, he has actually lost Rs. 60 Lakhs of additional gain that he would have got in ELSS
• At no point in the last 10 years, when the market has gone through all its gyrations, has the ELSS corpus been less than the PPF corpus.
• Even in March 2009, when the Sensex was at its lowest at 9000 levels, the ELSS corpus was more than twice the value of the PPF corpus.
• Even now, if the market were again to drop 50% like it did in 2008-09 (which nobody believes it will), the ELSS corpus would still be higher than the PPF corpus, even after a 50% drop.
• Apart from the returns aspect is the liquidity aspect. ELSS gives you liquidity after 3 years while PPF remains relatively illiquid for 15 years.

If you seriously read all these key points, you will understand the importance of equity investments. PPF are meant for long term investment, if you are ready to park your money for 15 years then why can’t you do the same with equity investments and enjoy the long term benefits associate with it.

Do give it a thought before making final decision to park that additional 50K…..!!!!